Taking stock of the Biden administration’s oil and gas reforms
From ending sweetheart deals for oil and gas companies to protecting America’s environment and wildlife, changes are underway for oil and gas drilling on public lands
The Bureau of Land Management (BLM), a federal agency in the Interior Department, oversees around 245 million acres, or one-tenth of the United States’ land base, as well as an additional 700 million acres of the nation’s subsurface minerals. Around 90 percent of BLM-managed public lands and minerals in the West are currently available to oil and gas companies through the federal onshore leasing program, which allows companies to lease parcels of public land for drilling.
For years, the oil and gas industry has had unfettered access to this land at bargain basement prices. For example, up until recently companies were able to nominate acreage for lease at no cost. Bidding on this land formerly started at just $2 per acre, but if parcels didn’t sell at auction, companies could take what was left for just $1.50 an acre. And once companies were issued their leases, which initially lasted for an entire decade, companies paid as little as $1.50 per acre in annual rental rates. Once companies decided to put their leases into production, they were charged a royalty rate of just 12.5 percent on the value of the oil and gas they extracted — the exact same rate they had paid since 1920. And these companies were — and still are — able to drill their wells under reclamation bonds starting at $10,000 per lease, an amount that falls far short of the actual cost to plug and remediate even just one well, leaving taxpayers holding the bag.
Thankfully, a number of reforms are underway to ensure taxpayers get a fair return for leasing and drilling on federal public lands, increase the minimum amount of money that companies must put up ahead of drilling to cover the cost of cleaning up wells, limit speculative leasing practices that prevent public lands from being adequately managed for other uses, and curb the amount of methane waste coming from wells on federal land. These reforms include legislation passed by Congress, as well as regulatory changes underway at the BLM and the Environmental Protection Agency (EPA). The federal rulemaking process is at the heart of these reforms, as it has the power to make them fairly permanent and ensure they are robustly implemented. But there’s a timeline on these rulemakings — and the clock is ticking.
Here’s a rundown of those changes and why they matter to the climate, taxpayers, and public lands.
The Inflation Reduction Act
The Inflation Reduction Act (IRA), passed by Congress in August 2022, contained important fiscal reforms to the federal oil and gas program that raised the bargain-basement rates mentioned above for the first time in decades.
It…
- Raised royalty rates for onshore oil production to 16.67 percent, up from 12.5 percent,
- Raised royalty rates for offshore oil production to between 16.66 percent and 18.75 percent,
- Raised minimum bids for onshore oil leasing to $10 per acre, up from $2 per acre,
- Raised rental rates for oil leases to $3 per acre in years 1–2 of a lease, increasing to $5 per acre in years 3–8, and $15 per acre in years 9+
- Added a $5 per acre fee for expressing interest in federal land for leasing, and
- Eliminated non-competitive leasing, which allowed companies to buy up leases that did not sell at auction for $1.50, instating secondary rounds of competitive auctions.
Implementing the IRA
Following the passage of the IRA, the BLM implemented its fiscal changes through a series of internal Instruction Memoranda. These memoranda offer guidance to ensure that the agency is complying with the law while the BLM writes a formal rule to codify the changes enacted by Congress. The memoranda include all of the IRA’s fiscal oil and gas reforms, as well as additional guidance addressing which public lands the BLM should prioritize offering for lease to oil and gas companies.
The additional guidance directs the BLM to prioritize parcels of public land for inclusion in federal oil and gas lease sales based on…
- The parcels’ proximity to existing oil and gas development,
- Minimizing conflict with important habitats or connectivity corridors,
- Minimizing conflict with high cultural resource values,
- Minimizing conflict with resources or other uses surrounding or within the parcel, and
- The parcels’ potential for oil and gas development (i.e. likelihood that oil and gas exists within the parcels).
While the fiscal reforms included in the IRA and the additional guidance issued in the memoranda are momentous, they failed to address a grave issue with the federal oil and gas program: inadequate bonding requirements. Bonds, which oil and gas companies are already required to put down before they can begin drilling on federal public lands, are meant to cover the amount of money necessary for fully plugging and adequately reclaiming well sites.
The minimum federal bonding rates were last updated in the 1950s and 1960s and have never been updated for inflation or to account for the increased costs associated with cleaning up modern wells. As a result, the bonds that the BLM currently holds are nowhere near high enough to cover the actual costs of cleaning up defunct and abandoned oil and gas wells, which leaves taxpayers to pay for well remediation in many cases. For example, the Interior Department has spent $1 billion of Bipartisan Infrastructure Law funding in the past two years to clean up orphaned oil and gas wells on federal, state, and private lands.
Locking in the reforms
Fortunately, the BLM recently proposed a draft rule that will clarify how the changes implemented by the IRA and the Instruction Memoranda will be implemented throughout the complex federal oil and gas leasing process, as well as address other longstanding issues that the agency has the discretion to act on, such as reforming the outdated federal bonding program.
The draft rule proposes to raise the minimum bond amount for a single lease from $10,000 to $150,000, as well as raise the minimum statewide bond amount (covering all of the federal leases that an operator holds within one state) from $25,000 to $500,000. The rule also seeks to eliminate nationwide bonds — a huge step forward that will ensure taxpayers aren’t responsible for cleaning up the enormous number of wells that an operator can currently drill under one, inadequate bond. Finally, by codifying the changes included in the IRA, the rulemaking process will ensure that the BLM’s regulations for oil and gas leasing are consistent with the law.
The Interior Department announced the draft rule on July 20, 2023. The public and industry have been invited to weigh in on the proposed changes over the course of the 60-day comment period, which ends September 22. At the end of this process, the BLM will publish a final rule, which will guide the BLM’s leasing program into the future. By enacting these changes through a formal rulemaking process, the Biden administration makes it harder for future administrations to undo them, helping to ensure these reforms stick for years to come.
Mandatory lease sales
Along with the IRA’s fiscal reforms, the law also imposed new requirements on the Interior Department that effectively force the BLM to offer for lease, annually, the lesser of either 2 million acres or 50 percent of the acres nominated by oil and gas companies for leasing that year. The law requires the BLM to hold at least one federal onshore oil and gas lease sale within the past 120 days in order to approve rights-of-way for renewable energy projects, making it a de facto requirement. The requirement tops out at 2 million acres per year, but in practice companies are not nominating anywhere close to that many acres.
In the 11 months since the IRA’s passage, the BLM has offered 147,660 acres of public land for oil and gas leasing. Companies have purchased leases on 83,500 of those acres — less than 60 percent of what the government offered.
In a recent lease sale, held in Wyoming in June 2023, oil and gas companies didn’t bother to bid on nearly half of the 127,000 acres that the BLM offered and that the companies themselves had originally nominated for leasing. The sale included nearly 90,000 industry-nominated acres on lands with low or no drilling potential, nearly all of which either went unsold or were purchased for the minimum $10 per acre bid. More than half of the $8 million revenue generated from the sale came from just two parcels covering 1,400 acres, or less than one percent of the total land offered for lease. One month later, the BLM offered nearly 5,000 acres for lease in Nevada, and not a single acre sold.
This tepid interest in new leasing suggests drillers are already sitting on the vast majority of federal land that is ever likely to produce oil. (Under President Trump, the BLM routinely offered millions of acres of public land each year for oil and gas leases, and companies bought leases on more than 6 million acres over the course of the Trump years.) In other words, it appears the IRA’s fiscal reforms are working — now that oil and gas companies have to pay up front to nominate public land for lease and have to pay fairer rates to taxpayers once they lease that land, they’re less likely to lock up public land without ever putting it to use.
However, with 90 percent of Western public lands and minerals still open to leasing, and the vast majority having little likelihood of ever producing oil, it is clear that the BLM must do more to limit speculative leasing and ensure that public lands aren’t tied up in unproductive leases that prevent adequate management for other uses, such as recreation and conservation. This is why the BLM’s proposal to formalize the use and application of leasing evaluation criteria — including the directive not to lease lands with little to no oil and gas development potential — is such a critical step towards reducing conflicts between federal oil and gas leases and other public land uses and resources.
Two approaches to methane
In the meantime, the BLM and the EPA are working on two similar rules to address the issue of methane waste from wells on federal land. Oil and natural gas operations are the nation’s largest industrial source of methane, a highly potent climate pollutant that is responsible for approximately one-third of current global warming resulting from human activities. Between 2010 and 2020, the total methane waste reported by federal and Indian onshore lessees averaged approximately 44.2 billion cubic feet per year, enough to power roughly 675,000 homes.
The BLM has proposed a rule to address methane emissions from wells on public land. The BLM released a draft of its updated Methane Waste Prevention Rule on November 28, 2022. The proposed rule aims to reduce leaks, venting, and flaring of methane from oil and gas operations on federal public lands by establishing new requirements to reduce methane waste and ensure that taxpayers are compensated through royalty payments when natural gas is lost from wells on federal land. The BLM says the proposed rule would generate $39.8 million a year in additional royalties for the American public and prevent billions of cubic feet of gas from being wasted through venting, flaring, and leaks. The 60-day comment period for that rule closed in December 2022, and the BLM has not yet published a final rule.
Finally, the EPA is also proposing a rule to reduce methane emissions from federal oil and gas wells. Most importantly, the rule would ensure that all wells are routinely monitored for leaks, with requirements based on the type and amount of equipment on site, as well as prevent leaks from abandoned and unplugged wells by requiring documentation that well sites are properly closed and plugged before monitoring is allowed to end. The rule also takes on the issue of flaring, a practice in which oil and gas operators burn excess methane at the well site instead of capturing it and selling it as natural gas. The comment period for this rule closed in early 2023, and the EPA says it plans to issue a final rule sometime this year.
The Inflation Reduction Act also included a provision requiring the EPA to impose and collect a charge on methane emissions that exceed certain thresholds. However, that section of the law only applies to facilities that emit more than 25,000 tons of carbon dioxide a year — exempting about 60 percent of the industry’s methane emissions from the new fee. This loophole means the IRA’s methane provision will likely have a limited effect on public lands.
Efforts to curb methane waste on public lands have been in legal limbo since the Obama administration issued a rule in 2016. That rule survived a challenge under the Congressional Review Act, only to see the Trump administration largely undermine it with a new rulemaking in 2018. While that new rule was thrown out by the courts in July 2020, the original Obama rule was also vacated by a judge later that same year, leaving outdated regulations from 1979 in place.
The ticking clock
The Biden administration must fast-track these rulemakings in order to implement durable protections.
The federal rulemaking process is, by design, lengthy, and it takes at least a year for any major rule to go from the draft stage to being finalized. Once an agency has drafted a proposed rule, it must be reviewed by the White House Office of Management and Budget (OMB), which can take months, before the proposed rule can be published in the Federal Register. Following publication of the proposed rule, the agency must hold a public comment period of at least 60 days and then respond to all substantive feedback on the rule. Then the revised rule is sent back to OMB, which undertakes a second review process, including meeting with any interested stakeholders. Only then can a final rule be published in the Federal Register and go into effect.
If the Biden administration wants these proposed rules — along with others, such as the BLM’s proposed Public Lands Rule and a rule to protect up to 13 million acres of land in the National Petroleum Reserve-Alaska — to stick, they must be finalized by April or May of 2024. Otherwise, the final rules could potentially be overturned by Congress through the Congressional Review Act (CRA) process.
The CRA gives Congress and the president the ability to overturn any major administrative action (most often a rulemaking) within 60 legislative days of that action being published in the Federal Register. For example, early in the Trump administration, Congress and President Trump used the CRA to erase a number of important Interior Department rules published late in President Obama’s second term, including the BLM “Planning 2.0” rule that would have required the agency to include public participation early in its land use planning process. Once a rule is overturned through the CRA process, an agency cannot write a substantially similar rule in the future, tying the hands of future administrations regardless of political party or control of Congress.
Because the CRA deadline is based on the legislative calendar, the actual cutoff date for a rule to be subject to repeal by a new Congress is a moving target, and the final date is not known until the outgoing Congress adjourns. For the Biden administration, this means the only way to be sure a rule is safe from the CRA, in the event there is a change in administrations, is to publish the final rule by the spring of 2024.
Rulemaking resources
BLM: Fluid Mineral Leases and Leasing Process
BLM: Waste Prevention, Production Subject to Royalties, and Resource Conservation
EPA: Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review
